An International Perspective on Corporate Social Responsibility, Investor Time Preferences, and Cost of Equity

Abstract

For a sample of 25,749 international firm-year observations, we evaluate the relationship be-tween shareholders’ time orientation, firms’ corporate social responsibility, and cost of equity capital. We show that patient institutional investors monitor the CSR strategy of the firms they are invested in, to the effect that the CSR practices of these firms lower their cost of equity capi-tal. Further analyses show that this effect is less pronounced when strong national institutions are in place, which makes monitoring by patient institutional investors dispensable. Our results rein-force the idea that CSR can be beneficial by lowering cost of capital as long as there are ade-quate control mechanisms in place.

Keywords: behavioral finance, corporate social responsibility, cost of equity, cultural finance, time orientation

JEL Classification: A12, F30, G32, M14